Our health and activity level passes through 3 phases during retirement. And that'll alter our living options and expenses. By recognizing this, you can modify your living expenses now to suit your wishes and happiness. I'll outline these phases and the actions you can take to optimize your lifestyle choices by minimizing your expenses.

The 3 phases of retirement are:

1) Healthy, Active and Independent Stage: Usually you begin your retirement in this phase. Your activity and lifestyle choice determines your expense level – and the associated income you need. Choosing a satisfying lifestyle with little expense may be best for you. This stage can last as long as your money and health hold out.

2) Minor Health Problems with Slowdown and Almost Independent Stage: You're still living independently but running into minor health issues. Hopefully you're doing what you want but are just slowing down. This stage may present the lowest expenses – i.e. the least demand for income. Hopefully, this is the last stage for many – no matter how long they live.

3) Infirmed and Dependent Stage: Eventually, the full effects of 'old age' will infirm many retirees. Three out of four1 future retirees will require long term care in their homes and nursing homes. Costs2 can be substantial – rising to as much as $80,000 per year for nursing home care in the U.S.

You can control the expenses of the first two stages by optimizing your lifestyle and activity choices. That way you'll know what retirement income you really need. And that can be far less than you think for a lifestyle you choose.

Recognizing the inevitability of our health's progression will get you to take the action now to choose a lifestyle you'll like and can afford.

Group your expenses into 3 categories:

1. The Basics: Housing, transportation, and meals

2. Entertainment

3. Healthcare

Throughout your first two phases, The Basics stay roughly the same, while entertainment decreases with decreased health and activity levels. Healthcare expenses trend slowly up but can dominate expenses in phase 3 especially if you need to go into a nursing home.

You can modify the expense for your Basics and Entertainment by choosing a lifestyle that maximizes your enjoyment but minimizes expenses. If you maintain living as when working – same house and location – your expense may be roughly the same.

But if you're willing to decide what's really important to you – and stop paying for what isn't – then you can drastically reduce your Basics and Entertainment in a variety of ways.

Examples include lowering your housing costs by buying down, taking on a renter; selling your car for a cheaper version; moving to a cheaper region of the country; or moving offshore for further reducing expenses. I offer ideas at my website.

Choose Your Lifestyle and Act On It:

Of course, you should lower your expenses but keep them compatible to the kind of lifestyle you'd find fulfilling. But you've got to think about what that is and act upon it. Perhaps follow your heart or dream. Happiness often accompanies a meaningful purpose to living.

Enjoyable and fulfilling examples may include living peaceably in a low income country, painting or writing as you always wanted to do, working as a volunteer or doing low paying charity work. Hopefully, such avocations will increase your zest for life – and maintain your health and activity phase longer. But it won't happen unless you make it happen.

So don't procrastinate and prepare yourself for action:

1) Decide what lifestyle will bring you fulfillment and joy in your 'retirement'

2) Search out all the ways you can modify your expenses so your income can support your lifestyle of choice.

Reducing unnecessary expenses may free up future income to pay for assistance and healthcare costs you develop in phase 2. Living offshore in a low income country often presents very inexpensive hired help for you as you get older.

And what if you succumb to the dependency and afflictions of phase 3?

If you have about $1m or more, your investment earnings can cover your care so you can leave a legacy to your children. With less wealth, you could purchase long term care insurance to protect whatever wealth you do have from going all to your long term care costs.

If you've given your wealth away and are broke, Medicaid will pick up the tab. So you needn't worry about money.

Above all, don't live your life for phase 3 – live it for phase 1.